The housing market in Russia has shifted from one in which the government produced most housing units to one in which the private market produces most units. This research examines the state of the housing market in the Tomsk region, located in the center of Russia. Because of the lack of functional mortgage markets, families must save enough money to finance the full purchase price of the housing unit. This research determines how much savings is available for a typical Tomsk family and how long it will take them to save enough money to buy a housing unit.
Satisfying the population's demand for modern housing services is a major social and economic problem in post cold war Russia. In the planned economy of the Soviet Union, housing construction was completed at the government's expense. Most construction projects were apartment units in multi-story buildings. Such units were owned by the state and distributed free-of-charge, although many families waited years to receive their apartments based on the rules of disposition.
The political transformation of Russia after the disintegration of the Soviet Union resulted in a major national economic crisis. Economic and political instability, hyperinflation and the outflow of capital from the country caused a deep investment crisis that spread to the housing market. The housing market opened in 1991 but because of limited financing, housing construction slowed. The annual increase in the housing stock slowed from 3% growth in the decade preceding the reforms to 1% during the reforms (Guzanova, 1997).
Beginning in 1991, local governments could transfer title of state-owned dwellings to their tenants, in some instances for a fee (but after 1992, for free) and the general population was allowed to engage in rental and sales transactions (Kaganova, 1999). The sale of housing has resulted in a redistribution of housing and a change in ownership patterns. At the beginning of the economic reforms, state-owned property holdings accounted for 80% of the housing stock. Today, more than half of the housing stock is privately owned (Daniell and Struyk, 1997). However, the government has not totally withdrawn from the provision of housing. Some families continue to receive free government-sponsored housing, including those who are war veterans, invalids, or have very large families.
With the shift to private ownership, a private housing market has emerged in Russia. High inflation (20.2% in 2000, World Bank, 2002) and little new construction have led to a significant rise in the price of housing, making it unaffordable to the majority of the Russian population. The home purchase hurdle is particularly high because the mortgage market is almost nonexistent. As a result, potential homebuyers must save enough money not just for a downpayment but for the full cost of the home.
This lack of affordability is especially evident in the areas where income growth has been outpaced by the appreciation in home prices. One of these areas is Tomsk, which is located in the geographical center of Russia. This paper examines the housing market in Tomsk and focuses on the severe affordable housing shortage, which is common in many emerging markets. Results clearly show that for the typical Tomsk family, homeownership is not a realistic option given the savings needed to purchase a residence.
Housing Market Characteristics in Tomsk
On the demand side of the housing market, more than one million people live in the Tomsk region. However, the standard of living is extremely low compared to many developed countries. The average annual income in the Tomsk region is $1,110 per person (Tomsk Statistical Bulletin, 2001). In comparison, the World Bank (2003) estimates the standard of living to be $36,322 per person in the United States and $2,127 per person for the Russian Federation as a whole.
On the supply side, the housing stock measures 202 million square feet (in Russia, the housing stock is measured in square feet, not number of housing units), of which 66. …